Transcript ATT16GU1 - Food and Drink Industry Ireland

‘The Changing Retail Environment
– An Economic Outlook’
FDII Annual Conference
APRIL 27th 2006
Jim Power
Chief Economist
Friends First
To Be Discussed
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Key Themes for Irish Economy
Irish Economic Background & Outlook
The Big Economic Issues
Consumer Dynamics
Context for the Food & Drinks
Industry
• Official Policy Implications
Key Themes
• Solid external economic background
• Rising interest rates
• Exchange rates relatively stable, but
modest euro appreciation likely
• Buoyant housing market
• Increased indebtedness
• SSIAs
• What are the risk factors?
What to Watch
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Oil Prices
Geo-Political turmoil
US twin deficits & currency instability
Chinese Imbalances
Housing bubbles
Too much aggression from paranoid ECB
Financial Conditions
• ECB rate tightening to continue
• 1 ¼ % by end-2007
• Another 0.25% from Fed, BOE could
cut
• Exchange rate markets very stable,
but
• Euro should make some gains
against sterling & dollar
The Irish Economy
• Strong momentum has carried over to 2006
• Consumer spending, Construction & Business
Investment strong
• Exports/Manufacturing finding life challenging
• Strong public finances, another ‘budget
bonanza’ in December
• SSIAs will exert considerable influence over
the next year
• Growth prospects 2006 & 2007 good
Forecasts
2005e
2006f
2007f
GDP
4.5%
5.2%
4.7%
GNP
4.8%
4.9%
4.4%
Consumption
5.8%
7.0%
6.5%
Investment
8.0%
7.0%
6.0%
Exports
3.0%
4.8%
4.5%
Inflation
2.5%
3.2%
2.9%
Unemployment
4.4%
4.3%
4.4%
Housing
Completions
80,974
82,000
75,000
Where is Ireland Today?
• Has come through a decade of strong
growth
• Growth momentum still strong, but nature of
economy is changing
• Rapid economic catch-up has highlighted
deficiencies
• Competitiveness has been undermined
• Significant dependence on residential
housing market
• Manufacturing & Agriculture under pressure
Significance of Housing Market
• Construction activity & direct employment
• Construction output valued at €30 bln, Housing
65%
• Mortgage market has grown from €25 bln to
€100 bln in 6 years
• Major driver of financial sector employment
• Important contributor to tax take directly &
indirectly
• VAT €2.6 bln, & Stamps €800 mln
• Equity market effect
• Housing stock valued at €530 bln, significant
consumer ‘wealth effect’
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06
140
120
100
80
60
40
20
0
35
30
25
20
15
10
5
0
CONSUMER CONFIDENCE
HOUSE PRICE GROWTH
%
House Prices & Consumer Confidence
The Housing Market in 2006
• Frenetic start to year
• Demand forces to remain strong
• Interest rates will have no more than a
modest sobering effect
• SSIAs will have an important influence
• Completions of around 82,000
• Prices set to rise by 8% +
• Residential housing will be an important
driver of activity once again
Near-Term Consumer Dynamics
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Very expansionary fiscal background
Strong labour market
SSIAs
Growing population
Increased affluence
Inflationary pressures picking up
Interest rates rising
Medium-Term Consumer Dynamics
• Medium-Term growth of 5% p/a
• Strong labour market, but quality of jobs
more important than quantity
• Rising population
• Inward migration
• Young age profile – higher spenders
• Increased consumer power
• Balance between taxation and public
spending
Changing Age Structure
AGE
2001
2006
2021
2036
0-14
21.5%
20.8%
19.8%
16.0%
15-34
31.9%
31.2%
23.4%
23.6%
35-49
20.7%
21.1%
23.1%
16.9%
50-64
14.7%
15.7%
18.4%
21.6%
65+
11.2%
11.2%
15.3%
21.9%
Contributors to Pop. Change
80,000
60,000
40,000
20,000
0
-20,000
1971-79
1979-81
1981-86
1986-91
1991-96
-40,000
BIRTHS
DEATHS
NET MIGRATION
1996-02
Employment Changes
SECTOR
Q4 2003 to Q4 2005
Agriculture
-8,100
Other Production
-9,100
Construction
+52,600
Hotels & Restaurants
+100
Financial & Business Services
+31,700
Wholesale & Retail Trade
+28,500
Education
+9,800
Health
+15,700
TOTAL
+151,700
Manufacturing Output
16
14
12
10
% 8
6
4
2
0
2000
2001
2002
2003
2004
2005
Manufacturing Growth Divergence
25
20
15
MODERN
% 10
TRAD
5
0
-5
2000
2001
2002
2003
2004
2005
Manufacturing Output Prices (ex VAT)
INDEX 2000=100
104
102
100
98
96
94
92
90
88
86
84
2000
2001
2002
2003
2004
2005
INDEX 2000=100
Retail Sales Volumes
125
120
115
110
105
100
95
90
85
80
2000
2001
ALL
2002
FOOD
2003
BARS
2004
2005
FOOD BEV & TOB
Price Changes (Jan’00-Mar ’06)
Overall CPI
+26.0%
Food
+14.7%
Cheese
+24.3%
Non-Alcoholic Beverages
+15.1%
Milk
+5.7%
Clothing & Footwear
-9.7%
Electricity
+52.7%
Water Supply & Refuse Charges
+239.3%
Consumer Issues
• ‘Rip-Off Ireland’ – a major myth!
• Consumer getting a more powerful, informed & demanding
voice
• Health Issues
• Price v Quality
• The Groceries Order
• Planning Guidelines
• Consumer demandinhg lower prices & different type of
shopping experience
• International competition will continue to grow to exploit one of
the most vibrant consumer markets in Europe
The Future
• Growing population, strong inward migration
• Changing demographics
• Economic outlook positive, notwithstanding
obvious challenges
• Increased affluence, but changing spending
patterns
• Price awareness will continue to rise
• Health issues will become more important
• Globalisation & competition issues for every
sector of economy, particularly retail sector
THANK YOU